Paycom Software, Inc.

Previous wording

This Management’s Discussion and Analysis of Financial Condition and Results of Operations is intended to provide a reader of our financial statements with management’s perspective on our financial condition, results of operations, liquidity, and certain other factors that may affect our future results. The following discussion and analysis of our financial condition and results of operations should be read in conjunction with (i) the accompanying unaudited consolidated financial statements and notes thereto for the three months ended March 31, 2026, (ii) the audited consolidated financial statements and notes thereto for the year ended December 31, 2025 included in our Annual Report on Form 10-K (the “Form 10-K”) filed with the Securities and Exchange Commission (the “SEC”) on February 19, 2026 and (iii) the discussion under the caption “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in the Form 10-K. Except for certain information as of December 31, 2025, all amounts herein are unaudited. Unless we state otherwise or the context otherwise requires, the terms “we,” “us,” “our” and the “Company” refer to Paycom Software, Inc. and its consolidated subsidiaries. All amounts presented in tables, other than per share amounts, are in millions unless otherwise noted.

Current wording

This Management’s Discussion and Analysis of Financial Condition and Results of Operations is intended to provide a reader of our financial statements with management’s perspective on our financial condition, results of operations, liquidity, and certain other factors that may affect our future results. The following discussion and analysis of our financial condition and results of operations should be read in conjunction with (i) the accompanying unaudited consolidated financial statements and notes thereto for the three and six months ended June 30, 2026, (ii) the audited consolidated financial statements and notes thereto for the year ended December 31, 2025 included in our Annual Report on Form 10-K (the “Form 10-K”) filed with the Securities and Exchange Commission (the “SEC”) on February 19, 2026 and (iii) the discussion under the caption “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in the Form 10-K. Except for certain information as of December 31, 2025, all amounts herein are unaudited. Unless we state otherwise or the context otherwise requires, the terms “we,” “us,” “our” and the “Company” refer to Paycom Software, Inc. and its consolidated subsidiaries. All amounts presented in tables, other than per share amounts, are in millions unless otherwise noted.

Previous wording

The following discussion contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Forward-looking statements are any statements that refer to our estimated or anticipated results, other non-historical facts or future events and include, but are not limited to, statements regarding our business strategy; anticipated future operating results and operating expenses, cash flows, capital resources, dividends and liquidity; competition; trends, opportunities and risks affecting our business, industry and financial results, including macroeconomic factors; future expansion or growth plans and potential for future growth, including internationally; our ability to attract new clients to purchase our solution; our ability to retain clients and induce them to purchase additional applications; our ability to accurately forecast future revenues and appropriately plan our expenses; market acceptance of our solution and applications; our expectations regarding future revenues generated by certain applications; the return on investment for users of our solution, as well as how certain applications may impact client employee usage and client satisfaction; our ability to attract and retain qualified employees and key personnel; future regulatory, judicial and legislative changes; how the performance of certain of our offerings is sensitive to changes in the labor market; our plan to add sales teams and our ability to effectively execute such plan; the sufficiency of our existing cash and cash equivalents to meet our working capital and capital expenditure needs over the next 12 months; our plans regarding our capital expenditures and investment activity as our business grows, including with respect to research and development and the expansion of our facilities; our plans to pay cash dividends; and our plans to repurchase shares of our common stock through a stock repurchase plan using cash and/or borrowings under our senior secured revolving credit facility (the “Revolving Credit Facility”). In addition, forward-looking statements also consist of statements involving trend analyses and statements including such words as “anticipate,” “believe,” “could,” “estimate,” “expect,” “intend,” “may,” “might,” “plan,” “potential,” “should,” “will,” “would,” and similar expressions or the negative of such terms or other comparable terminology.

Current wording

The following discussion contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Forward-looking statements are any statements that refer to our estimated or anticipated results, other non-historical facts or future events and include, but are not limited to, statements regarding our business strategy; anticipated future operating results and operating expenses, cash flows, capital resources, dividends and liquidity; competition; trends, opportunities and risks affecting our business, industry and financial results, including macroeconomic factors; future expansion or growth plans and potential for future growth, including internationally; our ability to attract new clients to purchase our solution; our ability to retain clients and induce them to purchase additional applications; our ability to accurately forecast future revenues and appropriately plan our expenses; market acceptance of our solution and applications; our expectations regarding future revenues generated by certain applications; the return on investment for users of our solution, as well as how certain applications may impact client employee usage and client satisfaction; our ability to attract and retain qualified employees and key personnel; future regulatory, judicial and legislative changes; how the performance of certain of our offerings is sensitive to changes in the labor market; our plan to expand our sales capacity and our ability to effectively execute such plan; the sufficiency of our existing cash and cash equivalents to meet our working capital and capital expenditure needs over the next 12 months; our plans regarding our capital expenditures and investment activity as our business grows, including with respect to research and development and the expansion of our facilities; our plans to pay cash dividends; and our plans to repurchase shares of our common stock through a stock repurchase plan using cash and/or borrowings under our senior secured revolving credit facility (the “Revolving Credit Facility”). In addition, forward-looking statements also consist of statements involving trend analyses and statements including such words as “anticipate,” “believe,” “could,” “estimate,” “expect,” “intend,” “may,” “might,” “plan,” “potential,” “should,” “will,” “would,” and similar expressions or the negative of such terms or other comparable terminology.

Previous wording

the possibility of security vulnerabilities, cyber-attacks and network disruptions, including breaches of data security and privacy leaks, data loss, and business interruptions;

Current wording

the possibility of security vulnerabilities, cyber-attacks and network disruptions, including breaches of data security and privacy incidents, data loss, and business interruptions;

Previous wording

As a result of our significant revenue growth and geographic expansion, we are presented with a variety of opportunities and challenges. Our payroll application is the foundation of our solution, and all of our clients are required to utilize this application in order to access our other applications. Consequently, we have historically generated the majority of our revenues from our payroll applications, although our revenue mix has evolved and will continue to evolve as we develop and add new non-payroll applications to our solution.

Current wording

Our payroll application is the foundation of our solution, and all of our clients are required to utilize this application in order to access our other applications. Consequently, we have historically generated the majority of our revenues from our payroll applications, although our revenue mix has evolved and will continue to evolve as we develop and add new non-payroll applications to our solution.

Previous wording

Our continued growth depends on attracting new clients by continuing to leverage our sales force productivity, penetrating existing markets and expanding into new markets, targeting a high degree of client employee usage across our solution, and introducing new applications to our existing client base. Client adoption of new applications and, historically, client employee usage of both new and existing applications have been significant factors in our recurring revenue growth. We believe our ability to continue to develop new applications and to improve existing applications will enable us to increase recurring revenues in the future. In addition, we plan to add sales teams in the future to further expand our market presence.

Current wording

Our continued growth depends on attracting new clients by continuing to leverage our sales force productivity, penetrating existing markets and expanding into new markets, targeting a high degree of client employee usage across our solution, and introducing new applications to our existing client base. Client adoption of new applications and, historically, client employee usage of both new and existing applications have been significant factors in our recurring revenue growth. We believe our ability to continue to develop new applications and to improve existing applications will enable us to increase recurring revenues in the future. In addition, we plan to expand our sales capacity in the future to grow our market presence.

Previous wording

Growing our business has resulted in, and may continue to result in, substantial investments in sales professionals, operating expenses, system development and programming costs (including those related to our full solution automation and AI initiatives) and general and administrative expenses, which have increased and may continue to increase our expenses. Historically, our revenue growth and geographic expansion have driven increases in (i) facility costs related to data centers, the expansion of our corporate headquarters, operations facilities and additional sales office leases and (ii) salaries and benefits and stock-based compensation expense. Automating our core business systems is creating new efficiencies that have led to reductions in headcount and, as a result, contributed to decreases in certain employee-related expenses during the three months ended March 31, 2026, as compared to the prior year period.

Current wording

Growing our business has resulted in, and may continue to result in, substantial investments in sales professionals, operating expenses, system development and programming costs (including those related to our full solution automation and AI initiatives) and general and administrative expenses. Historically, our revenue growth and geographic expansion have driven increases in (i) facility costs related to data centers, the expansion of our corporate headquarters, operations facilities and additional sales office leases and (ii) salaries and benefits and stock-based compensation expense. Automating our core business systems is creating new efficiencies that have led to reductions in headcount and, as a result, contributed to decreases in certain employee-related expenses during the three and six months ended June 30, 2026, as compared to the prior year periods.

Previous wording

The increase in recurring and other revenues for the three months ended March 31, 2026 compared to the three months ended March 31, 2025 was the result of the addition of new clients, increased revenue from sales of additional applications and services to existing clients, additions and increased usage of existing products and services, and the realization of pricing strategies. Client attrition, particularly among smaller clients, partially offset the favorable impact of these revenue drivers.

Current wording

The increase in recurring and other revenues for the three and six months ended June 30, 2026 compared to the respective prior year periods was the result of the addition of new clients, increased revenue from sales of additional applications and services to existing clients, additions and increased usage of existing products and services, and the realization of pricing strategies. Client attrition, particularly among smaller clients, partially offset the favorable impact of these revenue drivers.

Previous wording

The impact of lower interest rates during the three months ended March 31, 2026 compared to the three months ended March 31, 2025 was partially offset by an increase in average funds held for client balances, but nonetheless resulted in decreased interest earned on funds held for clients for the three months ended March 31, 2026 as compared to the same period in 2025. The average daily balance of funds held for clients was $3.1 billion and $2.9 billion for the three months ended March 31, 2026 and 2025, respectively.

Current wording

The impact of lower interest rates during the three and six months ended June 30, 2026 compared to the three and six months ended June 30, 2025 was partially offset by an increase in average funds held for client balances, but nonetheless resulted in decreased interest earned on funds held for clients for the three and six months ended June 30, 2026 as compared to the prior year periods. The average daily balance of funds held for clients was $3.0 billion and $2.8 billion for the six months ended June 30, 2026 and 2025, respectively.

Previous wording

During the three months ended March 31, 2026, operating expenses decreased from the comparable prior year period by $3.4 million, primarily due to a $4.6 million decrease in employee-related expenses, partially offset by increases in banking-related fees and shipping and supplies fees. Depreciation and amortization expense increased $6.1 million from the comparable prior year period, primarily due to the development of additional technology and purchases of other related fixed assets, partially offset by the impact of an increase in the estimated useful lives of servers and network equipment implemented in the third quarter of 2025.

Current wording

During the three months ended June 30, 2026, operating expenses decreased from the comparable prior year period by $3.8 million, primarily due to an $8.1 million decrease in employee-related expenses attributable to lower headcount, partially offset by increases in other categories of service costs, none of which were individually material. Depreciation and amortization expense increased $5.4 million from the comparable prior year period, primarily due to the development of additional technology and purchases of other related fixed assets, partially offset by the impact of an increase in the estimated useful lives of servers and network equipment implemented in the third quarter of 2025.

Previous wording

During the three months ended March 31, 2026, sales and marketing expenses increased from the comparable prior year period by $6.7 million, primarily due to a $7.1 million increase in marketing and advertising expense and a $3.0 million increase in other expenses, partially offset by a decrease in employee-related expenses.

Current wording

During the three months ended June 30, 2026, sales and marketing expenses increased from the comparable prior year period by $2.8 million, primarily due to a $4.6 million increase in marketing and advertising expense, partially offset by a decrease in employee-related expenses attributable to, among other things, lower headcount.

Previous wording

During the three months ended March 31, 2026, research and development expenses decreased from the comparable prior year period primarily due to a decrease in employee-related expenses.

Current wording

During the three and six months ended June 30, 2026, research and development expenses decreased from the comparable prior year periods primarily due to a decrease in employee-related expenses.

Previous wording

Expenditures for software developed or obtained for internal use are capitalized and amortized over a three-year period on a straight-line basis. The nature of the development projects underway during a particular period directly impacts the timing and extent of these capitalized expenditures and can affect the amount of research and development expenses in such period. The table below sets forth the amounts of capitalized and expensed research and development costs for the three months ended March 31, 2026 and 2025:

Current wording

Expenditures for software developed or obtained for internal use are capitalized and amortized over a three-year period on a straight-line basis. The nature of the development projects underway during a particular period directly impacts the timing and extent of these capitalized expenditures and can affect the amount of research and development expenses in such period. The table below sets forth the amounts of capitalized and expensed research and development costs for the three and six months ended June 30, 2026 and 2025:

Previous wording

During the three months ended March 31, 2026, general and administrative expenses increased $3.5 million from the comparable prior year period due to a $4.1 million increase in technology and communications expense and a $3.8 million increase in other expenses, partially offset by a $4.0 million decrease in employee-related expenses and a $0.4 million decrease in accounting and legal expenses.

Current wording

During the three months ended June 30, 2026, general and administrative expenses increased $7.2 million from the comparable prior year period primarily due to a $4.2 million increase in professional fees and a $1.9 million increase in technology and communications expenses.

Previous wording

The increase in interest expense for the three months ended March 31, 2026, as compared to the prior year period, was primarily due to the timing and amount of borrowings outstanding under the Revolving Credit Facility.

Current wording

The increase in interest expense for the three and six months ended June 30, 2026, as compared to the prior year periods, was primarily due to the timing and amount of borrowings outstanding under the Revolving Credit Facility.

Previous wording

Other income, net increased for the three months ended March 31, 2026 compared to the prior year period, primarily due to a $9.0 million gain resulting from the July 2025 amendment to the naming rights agreement. See Note 5 “Goodwill and Intangible Assets, Net.” This increase was partially offset by a $2.9 million loss on the disposition of property and equipment. In addition, lower interest income earned on corporate funds, driven by lower average interest rates, partially offset the increase in other income, net. For the three months ended March 31, 2026 and 2025, interest income earned on corporate funds was $1.9 million and $4.7 million, respectively.

Current wording

Other income (expense), net decreased for the three and six months ended June 30, 2026 compared to the prior year periods, primarily due to lower interest income earned on corporate funds and higher losses on dispositions of property and equipment. For the six months ended June 30, 2026, this decrease was partially offset by a $9.0 million gain recognized during the three months ended March 31, 2026 as a result of the July 2025 amendment to the naming rights agreement. See Note 5 “Goodwill and Intangible Assets, Net” for further discussion of this gain. For the three and six months ended June 30, 2026, interest income earned on corporate funds was $1.5 million and $3.5 million, respectively, compared to $5.5 million and $10.3 million for the corresponding prior year periods.

Previous wording

The provision for income taxes is based on a current estimate of the annual effective income tax rate adjusted to reflect the impact of discrete items. Our effective income tax rate was 27.7% and 26.8% for the three months ended March 31, 2026 and 2025, respectively. The higher effective tax rate for the three months ended March 31, 2026 was primarily attributable to a decreased research and development credit for the quarter ended March 31, 2026.

Current wording

The provision for income taxes is based on a current estimate of the annual effective income tax rate adjusted to reflect the impact of discrete items. Our effective income tax rate was 29.3% and 25.6% for the six months ended June 30, 2026 and 2025, respectively. The higher effective tax rate for the six months ended June 30, 2026 was primarily attributable to a decrease in excess tax benefits from stock-based compensation and a reduction of research and development credits.

Previous wording

Our principal sources of capital and liquidity are our operating cash flow and cash and cash equivalents. Our cash and cash equivalents consist primarily of demand deposit accounts and money market funds. Additionally, we maintain a $2.125 billion Revolving Credit Facility, which can be accessed as needed to supplement our operating cash flow and cash balances. As of March 31, 2026, we had $675.0 million of outstanding borrowings under the Revolving Credit Facility, and we used these borrowings to fund stock repurchases.

Current wording

Our principal sources of capital and liquidity are our operating cash flow and cash and cash equivalents. Our cash and cash equivalents consist primarily of demand deposit accounts and money market funds. Additionally, we maintain a $2.125 billion Revolving Credit Facility, which can be accessed as needed to supplement our operating cash flow and cash balances. As of June 30, 2026, we had $900.0 million of outstanding borrowings under the Revolving Credit Facility, and we used these borrowings to fund stock repurchases.

Previous wording

We fund our operations primarily from cash flows generated from operations. Historically, we have funded all ongoing capital expenditures, cash dividends and stock repurchases from available cash. During the first quarter of 2026, we borrowed $675.0 million under the Revolving Credit Facility to support our stock repurchase program. We may determine that it is appropriate to fund future stock repurchases or other capital requirements in the future from a combination of available cash and additional borrowings under the Revolving Credit Facility. We believe our existing cash and cash equivalents, cash generated from operations and available sources of liquidity will be sufficient to maintain operations, make necessary capital expenditures, service debt, pay dividends and opportunistically repurchase shares for at least the next 12 months. In addition, based on our strong profitability and continued growth, we expect to meet our longer-term liquidity needs with cash flows from operations and, as needed, financing arrangements. To the extent we elect to finance our long-term liquidity needs, we believe that the potential financing capital available to us in the future will be sufficient.

Current wording

We fund our operations primarily from cash flows generated from operations. Prior to 2026, we funded all ongoing capital expenditures, cash dividends and stock repurchases from available cash. During the six months ended June 30, 2026, we borrowed $900.0 million under the Revolving Credit Facility to support our stock repurchase program. We may determine that it is appropriate to fund future stock repurchases or other capital requirements in the future from a combination of available cash and additional borrowings under the Revolving Credit Facility. We believe our existing cash and cash equivalents, cash generated from operations and available sources of liquidity will be sufficient to maintain operations, make necessary capital expenditures, service debt, pay dividends and opportunistically repurchase shares for at least the next 12 months. In addition, based on our strong profitability and continued growth, we expect to meet our longer-term liquidity needs with cash flows from operations and, as needed, financing arrangements. To the extent we elect to finance our long-term liquidity needs, we believe that the potential financing capital available to us in the future will be sufficient.

Previous wording

Credit Agreement. We are party to a credit agreement (as amended from time to time, the “Credit Agreement”) with JPMorgan Chase Bank, N.A., as a lender, the administrative agent, the swingline lender and the issuing bank, and the lenders from time to time party thereto (collectively with JPMorgan Chase Bank, N.A., the “Lenders”). On April 23, 2026, the Credit Agreement was amended and restated and the aggregate commitments under the Revolving Credit Facility were increased to $2.125 billion. See Note 15 “Subsequent Events.” All loans under the Credit Agreement will mature on April 23, 2031 (the “Scheduled Maturity Date”). Subject to certain conditions set forth in the Credit Agreement, we may borrow, prepay and reborrow under the Revolving Credit Facility and terminate or reduce the Lenders’ commitments at any time prior to the Scheduled Maturity Date.

Current wording

Credit Agreement. We are party to a credit agreement (as amended or amended and restated from time to time, the “Credit Agreement”) with JPMorgan Chase Bank, N.A., as a lender, the administrative agent, the swingline lender and the issuing bank, and the lenders from time to time party thereto (collectively with JPMorgan Chase Bank, N.A., the “Lenders”).

Previous wording

Borrowings under the Credit Agreement bear interest at a rate per annum equal to (i) the Alternate Base Rate (“ABR”) plus an applicable margin (“ABR Loans”) or (ii) (a) the term Secured Overnight Financing Rate (“SOFR”) plus an applicable margin (the “Term SOFR Rate”) or (b) in the event that the Term SOFR rate is unavailable, the daily SOFR, plus an applicable margin (“SOFR Rate Loans”). ABR is calculated as the highest of (i) the rate of interest last quoted by The Wall Street Journal in the United States as the prime rate in effect, (ii) the federal funds rate plus 0.5% and (iii) the Term SOFR Rate for a one-month interest period plus 1.00%; provided that, if the ABR as determined pursuant to the foregoing would be less than 1.00%, such rate shall be deemed to be 1.00%. The applicable margin for ABR Loans is (i) 0.25% if the Company’s consolidated leverage ratio is less than 1.0 to 1.0; (ii) 0.50% if the Company’s consolidated leverage ratio is greater than or equal to 1.0 to 1.0 but less than 2.0 to 1.0; (iii) 0.75% if the Company’s consolidated leverage ratio is greater than or equal to 2.0 to 1.0 but less than 3.0 to 1.0; or (iv) 1.00% if the Company’s consolidated leverage ratio is greater than or equal to 3.0 to 1.0. The applicable margin for SOFR Rate Loans is (i) 1.25% if the Company’s consolidated leverage ratio is less than 1.0 to 1.0; (ii) 1.50% if the Company’s consolidated leverage ratio is greater than or equal to 1.0 to 1.0 but less than 2.0 to 1.0; (iii) 1.75% if the Company’s consolidated leverage ratio is greater than or equal to 2.0 to 1.0 but less than 3.0 to 1.0; or (iv) 2.00% if the Company’s consolidated leverage ratio is greater than or equal to 3.0 to 1.0.

Current wording

Borrowings under the Credit Agreement bear interest, at the Borrower’s election, at either (i) the Alternate Base Rate (“ABR”) plus an applicable margin or (ii) the term Secured Overnight Financing Rate (“Term SOFR Rate”) plus an applicable margin or, if the Term SOFR Rate is unavailable, the daily SOFR plus an applicable margin. The applicable margin is determined based on the Company’s consolidated leverage ratio and ranges from 0.25% to 1.00% for ABR borrowings and from 1.25% to 2.00% for SOFR-based borrowings.

Previous wording

Stock Repurchase Plan and Withholding Shares to Cover Taxes. In August 2022, our Board of Directors authorized a stock repurchase plan allowing for the repurchase of up to $1.1 billion of shares of our common stock in open market transactions at prevailing market prices, in privately negotiated transactions (including accelerated share repurchases) or by other means in accordance with federal securities laws, including Rule 10b5-1 programs. The stock repurchase plan was set to expire on August 15, 2024. In July 2024, our Board of Directors increased and extended the stock repurchase plan, such that $1.5 billion is available for repurchases through August 15, 2026. On March 5, 2026, the Board of Directors authorized the repurchase of up to an additional $200.0 million of shares of our common stock. On March 12, 2026, the Board of Directors replenished the stock repurchase plan such that the aggregate value of shares of common stock that could be repurchased under the stock repurchase plan was $750.0 million, and as of March 31, 2026, there was $750.0 million available for repurchases under the stock repurchase plan. On May 4, 2026, our Board of Directors approved a new stock repurchase plan authorizing the Company to repurchase up to $2.0 billion of shares of common stock. The new stock repurchase plan replaced the prior authorization and has no expiration date. Our stock repurchase plan may be suspended or discontinued at any time. The actual timing, number and value of shares repurchased depends on a number of factors, including the market price of our common stock, general market and economic conditions, shares withheld for taxes associated with the vesting of equity incentive awards and other corporate considerations.

Current wording

Stock Repurchase Plan and Withholding Shares to Cover Taxes. Our Board of Directors has authorized stock repurchase plans from time to time allowing for the repurchase of shares of our common stock in open market transactions at prevailing market prices, in privately negotiated transactions (including accelerated share repurchases) or by other means in accordance with federal securities laws, including Rule 10b5-1 programs. In July 2024, our Board of Directors authorized the repurchase of up to $1.5 billion of our common stock. On March 5, 2026, the Board of Directors authorized the repurchase of up to an additional $200.0 million of shares of our common stock. On March 12, 2026, the Board of Directors replenished the stock repurchase plan such that the aggregate value of shares of common stock that could be repurchased under the stock repurchase plan was $750.0 million. On May 4, 2026, the Board of Directors approved a new stock repurchase plan authorizing the Company to repurchase up to $2.0 billion of shares of common stock. The new stock repurchase plan replaced the prior authorization and has no expiration date. As of June 30, 2026, there was $1,655.5 million available for repurchases under the stock repurchase plan. Our stock repurchase plan may be suspended or discontinued at any time. The actual timing, number and value of shares repurchased depends on a number of factors, including the market price of our common stock, general market and economic conditions, shares withheld for taxes associated with the vesting of equity incentive awards and other corporate considerations.

Previous wording

During the three months ended March 31, 2026, we repurchased an aggregate of 8,375,443 shares of our common stock at an average cost of $126.61 per share, including 47,844 shares withheld to satisfy tax withholding obligations for certain individuals upon the vesting of equity incentive awards. Our payment of the taxes on behalf of those individuals resulted in an aggregate cash expenditure of $6.1 million and, as such, we generally subtract the amounts attributable to such withheld shares from the aggregate amount available for future purchases under our stock repurchase plan.

Current wording

During the six months ended June 30, 2026, we repurchased an aggregate of 10,945,515 shares of our common stock at an average cost of $128.48 per share, including 125,148 shares withheld to satisfy tax withholding obligations for certain individuals upon the vesting of equity incentive awards. Our payment of the taxes on behalf of those individuals resulted in an aggregate cash expenditure of $16.6 million. We deduct the value of such withheld shares from the amount available for future repurchases under our stock repurchase plan.

Previous wording

In addition, we purchased the naming rights to the downtown Oklahoma City arena that is currently home to the Oklahoma City Thunder National Basketball Association franchise. Under the terms of the naming rights agreement, we committed to make escalating annual sponsorship fee payments from 2021 to 2035. The payments are due in the fourth quarter of each year. In July 2025, the naming rights agreement was amended to provide, among other things, that the agreement and our obligation to make the previously disclosed annual sponsorship fee payments thereunder will terminate on the earlier of (i) September 30, 2028 or (ii) the date of the last event hosted or presented at the current arena (subject to earlier termination in certain limited circumstances), with a reduction in the sponsorship fee if the term of the agreement ends prior to September 30, 2028 and in certain other limited circumstances. As a result of the July 2025 amendment to the naming rights agreement, the Company recognized a $35.6 million gain during the quarter ended September 30, 2025 with respect to the released portion of the liability. In March 2026, a contingency specified in the July 2025 amendment was met, resulting in a reduction in the annual sponsorship fee for the remainder of the amended agreement term. As a result, the Company recognized a $9.0 million gain during the three months ended March 31, 2026, which is included in other income, net in the consolidated statements of comprehensive income.

Current wording

In addition, we purchased the naming rights to the downtown Oklahoma City arena that is currently home to the Oklahoma City Thunder National Basketball Association franchise. Under the terms of the naming rights agreement, we committed to make escalating annual sponsorship fee payments from 2021 to 2035. The payments are due in the fourth quarter of each year. In July 2025, the naming rights agreement was amended to provide, among other things, that the agreement and our obligation to make the previously disclosed annual sponsorship fee payments thereunder will terminate on the earlier of (i) September 30, 2028 or (ii) the date of the last event hosted or presented at the current arena (subject to earlier termination in certain limited circumstances), with a reduction in the sponsorship fee if the term of the agreement ends prior to September 30, 2028 and in certain other limited circumstances. As a result of the July 2025 amendment to the naming rights agreement, the Company recognized a $35.6 million gain during the quarter ended September 30, 2025 with respect to the released portion of the liability. In March 2026, a contingency specified in the July 2025 amendment was met, resulting in a reduction in the annual sponsorship fee for the remainder of the amended agreement term. As a result, the Company recognized a $9.0 million gain during the three months ended March 31, 2026, which is included in other income (expense), net in the consolidated statements of comprehensive income for the six months ended June 30, 2026.

Previous wording

On July 4, 2025, H.R. 1, the “One Big Beautiful Bill Act” (the “OBBBA”) was signed into law, bringing significant amendments to the U.S. tax code. The OBBBA allows an immediate deduction for domestic research and development expenditures and reinstates 100% bonus depreciation. Our cash tax remittances decreased in the second half of 2025, and we anticipate that continued reductions will positively impact cash flows in future periods.

Current wording

On July 4, 2025, H.R. 1, the “One Big Beautiful Bill Act” (the “OBBBA”) was signed into law, bringing significant amendments to the U.S. tax code. The OBBBA allows an immediate deduction for domestic research and development expenditures and reinstates 100% bonus depreciation. These provisions reduced our cash tax remittances during the second half of 2025 and the first half of 2026, which favorably impacted operating cash flows, and we expect they will continue to provide a benefit in future periods, although to a lesser extent.

Previous wording

The following table summarizes the consolidated statements of cash flows for the three months ended March 31, 2026 and 2025:

Current wording

The following table summarizes the consolidated statements of cash flows for the six months ended June 30, 2026 and 2025:

Previous wording

Cash provided by operating activities for the three months ended March 31, 2026 primarily consisted of payments received from our clients and interest earned on funds held for clients. Cash used in operating activities primarily consisted of personnel-related expenditures to support the growth and infrastructure of our business. These payments included costs of operations, advertising and other sales and marketing efforts, information technology infrastructure development, product research and development and security and administrative costs. Compared to the three months ended March 31, 2025, our operating cash flows for the three months ended March 31, 2026 were negatively impacted by changes in working capital.

Current wording

Cash provided by operating activities for the six months ended June 30, 2026 primarily consisted of payments received from our clients and interest earned on funds held for clients. Cash used in operating activities primarily consisted of personnel-related expenditures to support the growth and infrastructure of our business. These payments included costs of operations, advertising and other sales and marketing efforts, information technology infrastructure development, product research and development and security and administrative costs. Compared to the three and six months ended June 30, 2025, our operating cash flows for the three and six months ended June 30, 2026 were positively impacted by favorable changes in operating assets and liabilities.

Previous wording

Cash used in investing activities for the three months ended March 31, 2026 decreased from the comparable prior year period due to a $175.6 million decrease in purchases of investments from funds held for clients, a $167.0 million increase in proceeds from investments from funds held for clients, and a $6.5 million decrease in purchases of property and equipment.

Current wording

Cash used in investing activities for the six months ended June 30, 2026 decreased from the comparable prior year period due to a $299.2 million decrease in purchases of investments from funds held for clients, a $167.0 million increase in proceeds from investments from funds held for clients, and a $44.6 million decrease in purchases of property and equipment.

Previous wording

Cash used in financing activities for the three months ended March 31, 2026 increased from the comparable prior year period due to the impact of a $1,086.3 million change related to the client funds obligation, which reflects the timing of receipts from our clients and payments made on their behalf to employees and applicable taxing authorities, $1,054.3 million increase in repurchases of common stock, and a $0.9 million increase in withholding taxes paid related to net share settlements. These increases were partially offset by $675.0 million of borrowings under the Revolving Credit Facility, a $3.6 million increase in proceeds from the employee stock purchase plan, and a $3.4 million decrease in dividends paid.

Current wording

Cash used in financing activities for the six months ended June 30, 2026 increased from the comparable prior year period due to a $1,389.7 million increase in repurchases of common stock, the impact of an $82.4 million change related to the client funds obligation, which reflects the timing of receipts from our clients and payments made on their behalf to employees and applicable taxing authorities, and an $8.1 million increase in the payment of debt issuance costs. These increases were partially offset by $900.0 million of borrowings under the Revolving Credit Facility, a $21.2 million decrease in withholding taxes paid related to net share settlements, a $7.4 million decrease in dividends paid, and a $4.4 million increase in proceeds from the employee stock purchase plan.